IMPORT, EXPORT BUSINESS SET TO CREATE A HISTORY
For the current year, the export target has been fixed at $ 17 billion and imports at $ 22 billion with a consequent trade gap of about $ 5 billion.
From: SHAMIM AHMED RIZVI, ISLAMABAD
Feb 27 - Mar 05, 2006
Import and export business in Pakistan is set to create a new history during the current financial year (2005-06) with a ballooning balancing trade deficit.
Imports have swelled to $15.799 billion during the first seven months of the current fiscal against $ 10.527 billion during the same period of last year showing an increase of more than 50 percent. Exports also maintained rising trend and jumped by about 21 percent during the first six months, which declined, to 7.11 percent during January 2006. The total exports during the first seven months remained at $ 9.303 with net trade deficit of about 6.496 billion showing an increase of 127.31 percent over the corresponding period in the previous year. For the current year, the export target had been fixed at $ 17 billion and imports of $ 22 billion with a consequent trade gap of about $ 5 billion, which was surpassed during the first six months of the current fiscal.
In the current financial year the exports are being projected between 17-18 billion dollars while imports are being seen in the vicinity of 26-28 billion dollars. Another astounding development on the foreign trade front will be the unexpected and unparalleled quantum of trade deficit that is being viewed in the range of 10-12 billion dollars, twice that of FY 05.
Details obtained by PAGE point out that like the last two financial years the imports continued to show sturdy growth in the current financial year, bolstering the trade imbalance and causing strain on the foreign exchange reserves of Pakistan that have dwindled steadily from nearly 13 billion dollars to 11.5 billion dollars. From July to December of the current financial year the total foreign trade of Pakistan had expanded to 21.72 billion dollars, showing a substantial surge of 6.29 billion dollars when compared to 15.43 billion dollars external trade during the corresponding period of previous fiscal year.
Foreign trade profile of Pakistan points out that from fiscal year 2002-03 the external trade of the country had been portraying a steady upward journey. In FY 02 the foreign trade amounted to 19.47 billion dollars (9.13 billion exports and 10.34 billion imports), while in FY03 the external trade shot up to 23.38 billion dollars (11.16 billion exports and 12.22 billion imports). In FY04 Pakistan's foreign trade surged to 27.90 billion dollars (12.31 billion exports and 15.59 billion imports), while in FY05 the country had sustained a huge trade deficit of 6.20 billion dollars due to unexpected expansion in imports. The growing trade deficit in the current financial year has assumed horrifying proportion, which must ring alarm bells in the corridors of power.
Surprisingly, however, there appears no panic in the Ministry of Finance and economic managers of the country seem least worried about the worsening situation.
Talking to newsmen, Dr Ashfaq Hasan Khan, the Economic Advisor to the Ministry of Finance said: "we should not worry about the soaring trade deficit as long as the country has a strong foreign exchange inflow". He ruled out that ballooning trade deficit would negatively affect the economic stability showing optimism that the strong inflow of foreign exchange in the country was enough to finance it. "The inflow of remittances, foreign direct investment (FDI), portfolio investment, foreign economic assistance and foreign exchange reserves are very encouraging," he added.
The deficit reflects the impact of high international oil prices and rising imports of industrial and office machinery as well as automobiles and a variety of raw materials for making consumer and capital goods. There is also a close link between the trade deficit and the state of the economy. In times of economic growth, there is a relatively high level of demand, some of which will be the demand of goods from abroad, he maintained. During the first six months, Pakistan experienced the current accounts deficit at negative 2.903 billion as compared to just $805 million during the corresponding period of the previous year.
However, the economic managers of the government have been showing satisfaction that the current account was manageable by borrowing from abroad, remittances, drawing down reserves and inflow of investment. Director Pakistan Institute of Development Economics (PIDE) Dr. A. R Kemal had also endorsed the idea that the current account deficit was manageable despite a soaring figure. He said that Pakistan's financial account was already in surplus. However, to finance the current account deficit, which is currently above $ 3 billion, the government could bridge the gap through high remittances inflow, take loan and draw down its reserves.
The widening trade deficit would also hurt the country's reserves, which the State Bank of Pakistan (SBP) in its recently issued monetary policy statement for January-June 2006, has showed concern over the exceptional growth in the trade deficit saying that is has impacted the foreign asset position. The current foreign exchange data issued by the SBP also supports the banks' concern, which declined to $ 11.420 billion on February 11, 2006, which was $11.668 billion in December 2005. The data also show that as much as the trade deficit increases the reserves also decline. Besides, the trade deficit would balloon up the country's external debt.
Independent economists are of the opinion that any significant cut in the import bills is not possible in the near future as imports largely comprise raw material and machinery, petroleum products and essential food items like meat, wheat and sugar. In their opinion it is the export sector, which requires more focused attention.
In order to bring about a quantum jump in exports, the government has been urging the developed countries to allow greater access in their markets to our exportable products. Exporters are required to produce their products at competitive rates and improve quality standards in order to compete in the establishment of the Trade Development Authority of Pakistan with the objective of bringing about a significant increase in exports. With higher export oriented industrial production, it would be possible to create export surpluses for sale in international markets.